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How can I pay off my home loan faster?

Chances are you want to pay off your home loan sooner rather than later. One of the simplest ways to cut years off your home loan is to make fortnightly repayments.

Other hacks include switching from IO to P&I early, making extra repayments, getting paid into an offset account, and switching to a lower interest rate. Here we'll explain how you can make these hacks work for you.

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How to shave years off your home loan:

#1. Switch to fortnightly repayments

A trick that can shave years off your home loan is to make fortnightly repayments instead of monthly repayments. Divide the amount of your monthly repayment by 2 and repay that amount on the same day every fortnight.

Here's the math: there are 12 months in a year, but 26 fortnights each year. By making fortnightly repayments you’ll pay the equivalent of an extra month each year!

And that's not the only reason why switching to fortnightly repayments is a good idea. Lenders typically calculate interest daily, so making home loan repayments fortnightly instead of monthly reduces the amount of compounding interest you would normally pay.

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#2 Get an interest rate that starts with a 3.xx%

If your home loan interest rate doesn't start with a 3, then you could do better! A recent Lendi study found that by switching from a 5.67% rate to the cheapest rate available of 3.64%, Australian households could save up to $162,458 over a 30-year loan term (based on the average Australian home loan of $371,100).

If you switch to a lower rate but maintain your current repayment amount, you'll be on course to pay your loan off early. You can find out if you're eligible for a lower rate here.

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#3. Round up your repayments

Rounding up your repayment amount gives you a figure that is easier to remember and means you’ll be making extra repayments without even thinking about it. If you have to pay $1,800 each month, try to pay $2,000.

If you can afford to pay an extra $200 each month, it will reduce the interest your lender charges you and you'll be debt-free sooner. Even if you can only afford an extra $20 or $50 each month, every dollar counts and it can still make a difference.

Try getting into the habit of saving coins and $5 notes. This small change will grow over time and can then be used for additional repayments, or can be kept as an emergency fund in case your circumstances change unexpectedly.

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#4. Use an offset account or redraw facility

If used effectively, an offset account can help you save thousands of dollars in interest. Say you owe $200,000 towards your home loan and have $10,000 in an offset account, the $10,000 will be ‘offset’ against the amount payable on your home loan and you will only be charged interest on $190,000. If you're paying less in interest you should try to make larger repayments to pay your home loan off early.

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A redraw facility attached to your home loan also reduces the amount of interest you pay and allows you to access funds from any additional repayments you've made. The benefits of a redraw facility are that you can make extra repayments more frequently without incurring a high fee for doing so, and you have the security of being able to withdraw these funds freely should you need them.

#5. Get your salary paid into your offset account

One easy way to reduce the amount of interest you pay is to get your salary paid directly into your offset account. You can use this as a daily transactional account and access your money as frequently as you wish, but each day that money sits in the account means that you've saved a little in interest.

Find out how much you could save with our offset account calculator.

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#6. Put your bonus towards your home loan

If you are able to, there are huge benefits to making additional repayments. Each extra repayment reduces the principal amount that you owe. Lowering this outstanding amount will, in turn, mean that the interest your lender charges will be lower.

If you receive a lump sum payment, such as tax back, an inheritance or a work bonus, consider paying all or a portion of this towards your home loan to reduce the principal amount owed. Any substantial repayments can go a long way to reducing the term of your home loan.

Can't make extra repayments on your loan? Chat with a Home Loan Specialist on 1300 323 181 for free expert advice.

#7 Switch from Interest Only to Principal & Interest repayments

Lately, we've seen considerably lower Principal & Interest rates offered in Australia meaning that many Australians are able to switch from IO to P&I repayments without breaking the bank. If you can afford to make the switch to P&I, the sooner you do will mean that you'll pay less interest down the line, saving yourself a bundle of cash, and you can pay off your loan early.

How much will your P&I repayments be? Chat to a Home Loan Specialist for free expert advice.

How much could you save with a lower interest rate?

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Looking for home loan advice?

Chat with a Home Loan Specialist on 1300 323 181 for free expert advice.

Tags: home loan, additional repayment, extra repayments, offset account, redraw facility, refinance

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Important legal stuff

COMPARISON RATE WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years.
Lendi is the trading name of Lendi Pty Ltd, a related body corporate of your licensed credit assistance provider, Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence Number 442372). We will never sell your email address to any third party or send you nasty spam, promise.
EXAMPLE: This example is current as at 20th October 2016. A Click Loans Online Principal and Interest Loan of $150,000 over 25 years has monthly repayments of $767. This is calculated based on the interest rate of 3.69%, comparison rate of 3.69%, upfront fees of $0 and annual fees of $0.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
Lendi is a privately owned and operated Aussie business. Our mission is to provide Aussies with the right experience when choosing a home loan from our panel of major and non-bank lenders including Click Loans which is a wholly owned subsidiary of Auscred Pty Ltd and a related body corporate of Auscred Services, your credit assistance provider. Although Lendi compares over 1600 products from over 30 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 40% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors. We have an independent and founder led board.
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